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TREASURIES-Yields fall as China introduces tariffs on US goods

Karen Brettell

* China unveils retaliatory tariffs

* Speech by Fed's Powell in focus

* Traders see 94% chance of rate cut in September

NEW YORK, Aug 23 (Reuters) - U.S. Treasury yields fell on Friday after China unveiled retaliatory tariffs against about $75 billion worth of U.S. goods, marking the latest escalation in a protracted trade dispute between the world's two largest economies. China's commerce ministry said in a statement it would impose additional tariffs of 5% or 10% on a total of 5,078 products originating from the United States that include agricultural products, crude oil, small aircraft and cars. Tariffs on some products would take effect on Sept. 1 and others on Dec. 15. The escalating U.S.China trade war is weighing on business sentiment even as investors are already worried about slowing international growth. The tariff announcement comes just before U.S. Federal Reserve Chairman Jerome Powell is due to give a speech in Jackson Hole, Wyoming, which will be evaluated for signs of whether further rate cuts are likely. The U.S. central bank last month cut interest rate by 25 basis points, but indicated further rate decreases may not be needed. Minutes of the July 30-31 meeting released on Wednesday show that policymakers were divided on cutting rates in July, and were united in wanting to avoid the appearance of being on the path to further rate cuts. Kansas City Fed President Esther George, who dissented against the U.S. central bank's decision to cut rates last month, and Philadelphia Fed President Patrick Harker, who said he "reluctantly" supported the rate cut, both said on Thursday the U.S. economy does not need more stimulus at this point.

On Friday, St. Louis Federal Reserve President James Bullard gave an opposing view, saying the Fed continued to ease monetary policy because of the Treasury yield curve. The bond market has priced in a far more bearish picture on the economy since the Feds July meeting. The two-year, 10-year yield curve inverted last week for the first time since 2007, a signal that a recession is likely in one to two years. The curve has traded in and out of inversion for the past three days. Interest rate futures traders are pricing in a 100% chance of a rate cut at the Feds September meeting, according to the CME Groups FedWatch tool.

Benchmark 10-year notes were last up 2/32 in

price to yield 1.603%, down from 1.610% late on Thursday.

The two-year, 10-year yield curve is one

basis point.

(Editing by Bernadette Baum)

)